United States: Flood Insurance Update - February 3, 2014

On January 30, 2014, the US Senate passed S.1926, the
Homeowner Flood Insurance Affordability Act, on a vote of
67-32. Support for this bill included several Republican Senators
from the coastal states of Louisiana, Mississippi, Georgia and
Florida, suggesting that Congress may yet enact additional
modifications to the flood insurance program this year. Action in
the House is not yet assured, but there are indications that the
House will consider a modified version of the Senate proposal.

The Landscape for the Flood Insurance Program: Omnibus
Provisions

In 2012, Congress enacted the Biggert-Waters Flood Insurance
Reform Act, (Biggert-Waters Act) which would impose dramatic
premium increases on grandfathered policies in October of this
year. The rate increases were intended to improve the financial
stability of the National Flood Insurance Program
(NFIP)†ó at present, the program is $24 billion in debt
with further deficits projected over time. Rep. Bill Cassidy (R-LA)
and Senator Mary Landrieu (D-LA) have been the most vocal members
of Congress in seeking an implementation delay of these premium
increases, and have both added language to other legislative
vehicles, including a successful addition to the Senate Homeland
Security appropriations bill.

The $1.1 trillion omnibus spending package, passed by Congress
and signed by the President on January 17 of this year, included a
one-year delay in rate increases for some newer homes. The omnibus
action blocks the Federal Emergency Management Agency's (FEMA)
ability to implement the scheduled premium increases, but did not
address additional concerns regarding subsidies and subsidy
transfers for new homes.

Senate Action & Amendments

Following the passage of the omnibus bill, the Senate moved
ahead with consideration of S. 1926, which focused directly on the
issues of subsidies and other contested components of the
Biggert-Waters Act not addressed in the omnibus provisions.

S. 1926 was introduced by Senator Bob Menendez (D-NJ) and
Senator Johnny Isakson (R-GA), both from states that were severely
impacted by flooding due to Hurricane Sandy and other natural
disasters in recent years. The legislation would delay the
provisions of the Biggert-Waters Act for four years. Because
Biggert-Waters expires in 2017, if enacted into law, S. 1926 would
essentially nullify the reforms made to the NFIP by the
Biggert-Waters Act..

Driven by concerns regarding the financial stability of the
NFIP, Senator Patrick Toomey (R-PA) proposed an amendment to S.
1926 that would have adjusted the phase-in of higher insurance
rates, rather than delay them; the Senate rejected the proposal and
the amendment failed on a 34-65 vote. Critics of Senator
Toomey's amendment said it would allow rates to increase before
FEMA could complete an affordability study and finalize new flood
maps.

House Reaction

Despite swift Senate action, S. 1926 still faces strong
opposition and criticism in the House, primarily from fiscal
conservatives who assert that any delay of premium rate increases
will bankrupt the already under-water flood insurance program. If
the NFIP were unable to sustain the weight of its debt, it could
leave property owners more vulnerable to loss of coverage and force
a taxpayer-funded bailout of the program.

Speaker of the House John Boehner (R-OH) has indicated that the
House will not consider a four year delay of flood insurance
premium increases, but may consider some flood insurance changes to
assist homeowners and protect taxpayers. Additionally, Chairman of
the House Financial Services Committee Rep. Jeb Hensarling (R-TX)
has expressed opposition to the premium increase delay making it
unlikely that a flood insurance bill with a long term delay of such
premium increases would move out of his committee.

The White House Reaction and the Prospect for Final
Passage

In a rare instance where their positions are aligned, both House
Republican Leadership and the Obama Administration oppose a four
year delay of Biggert-Waters implementation. On Monday, the White
House acknowledged that many policyholders are struggling
financially with the new rates and underscored the President's
commitment to work with Congress to find fiscally responsible ways
to address these challenges. Despite opposition to the four year
delay, the White House said it supports the policy goals unrelated
to flood insurance issues in Title II of S.1926, , which would
establish the National Association of Registered Agents and Brokers
(NARAB) to license agents and brokers to sell insurance in states
outside their home state, rather than separate licenses for each
state.

GAO Flood Insurance Study

An analysis by the Government Accountability Office (GAO) was
released days before the Senate took action on S. 1926. In the
report, GAO highlighted the structural weaknesses of the NFIP and
the risk of its potential burden to taxpayers. The GAO recommended
that Congress consider eliminating subsidized rates, charge
full-risk rates to all policyholders, and appropriate funds for
premium assistance to eligible policyholders to address
affordability issues. The report also found that private insurers
would be more willing to write flood coverage if the federal
government insured only the riskiest properties. Alternatively, the
GAO said the government could become the reinsurer for the
industry.

As legislative action moves to the US House, we will continue to
provide updates on the progress of these NFIP proposals.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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